Different desired outcomes for Dell, Microsoft should the PC maker go private.

In 1997, at the height of his PC-fueled bravado, Dell CEO Michael Dell said publicly that Apple, then in decline, should be dissolved. "I'd shut it down and give the money back to shareholders." Now Apple sits near the pinnacle of the industry, and Dell is looking at giving his company's stockholders their money back—and taking the company private. And it looks like Microsoft is going to give him a hand with that.

Dell is hardly in the kind of shape Apple was in 1997. It is profitable and has billions in cash, while Apple was on the verge of bankruptcy. But Dell is trying to transform his company in a fashion similar to what Steve Jobs undertook in 1997—by shedding the company's consumer brands and focusing on businesses.

The problem Dell has is that its consumer PC business—the very golden goose that laid the golden eggs that bought Dell into its current position in the enterprise market—has instead become an albatross. Dell has been moving away from the metaphorical pelagic waterfowl for years. The last major investment Dell made to shore up its PC business was the acquisition of Alienware in 2006 (on former CEO Kevin Rollins' watch).

When Michael Dell returned as CEO, he hired designers and tried to make Dell's consumer products into Apple-like objects of desire, but he got uneven results. And since Dell's acquisition of Perot Systems in 2009, it has been a steady march away from the desktop business toward being an end-to-end business technology provider.

But the company has gotten nothing but grief in the process from Wall Street. Investors have punished the company by dumping its stock and reducing its market value. As Dell has tried to shift its focus away from the consumer PC business, the stock market has rewarded the company by cutting the company's value by 43 percent over the past five years.

So, it looks like there's one thing left for Dell to do: fire the investors and take the company private in a leveraged buy-out. It's a nuclear option that will cost the company—or the people and companies that put together the buyout—over $20 billion in debt and cash to pull off. And that's before Dell starts restructuring the company radically to compete more effectively in the enterprise business. But will Dell—and by translation, Microsoft—really benefit from the move?

For Microsoft, a cash machine

According to reports from the Wall Street Journal and others, Microsoft is looking to put up as much as $3 billion to finance the deal. The motivations for Microsoft are pretty obvious:

If it gets a percentage ownership of Dell out of the deal, it could exercise a good deal of influence over Dell's consumer and enterprise business strategies.

If the money is a loan rather than an investment, it gets a constant revenue stream out of Dell in the form of interest payments—and still has significant influence over Dell's business direction.

By shoring up Dell, Microsoft preserves another major revenue stream: Windows licenses. And a Dell more focused on the enterprise could help push Office and Windows Server products through consulting and end-to-end solution sales.

And finally, by putting Dell in a position to move more forcefully into the enterprise, Microsoft is also potentially getting them out of the way of Redmond's own Surface consumer products. No matter what form Microsoft's partnership with Dell takes, it's a win—at least if Dell doesn't crater as a result. It's also a potential pain point for other PC makers. Gartner Analyst Michael Gartenberg told Bloomberg, "If you’re a vendor that wasn’t happy with Surface, the idea of Microsoft owning part of Dell is not going to cheer you up."

Dell's upside: freedom?

The desire to get Dell off the public market is understandable—being a publicly traded company can be a pain. In addition to the fickleness of the financial markets, being a public company comes with a lot of additional costs and oversight. Those aren't in and of themselves major cost centers (though for some companies the size of Dell, the cost of Sarbanes-Oxley compliance alone can run into multiple millions of dollars). But they do put a drag on operations and affect planning.

It also means that the company doesn't have to worry about a hostile takeover or "activist" investors coming along and turning over the company's strategy apple cart. For some companies (such as Hewlett-Packard, maybe), that might not be such a bad thing long-term. But the biggest benefit of going private is that Dell could make decisions based on long-term strategic goals instead of basing them on the immediate issues that drive the company's market valuation.

The downside of going private is that it prevents the company from easily making more big acquisitions—not having the ability to treat its stock like cash means that the company will have to buy other companies with, well, cash or cash-equivalents. There are limits to how many ways the company can be split up amongst owners as a privately held firm, so Dell wouldn't be able to swap ownership shares to acquire other companies as easily.

Wall Street: Freedom is slavery

And that's the big reason many on Wall Street have bet against Dell going private—they think the company needs to make more strategic acquisitions to grow. Going private, Sanford C. Bernstein and Co. Analyst Toni Sacconaghi told investors in a note last week, "may require about $4 billion in equity" and would actually make it harder for Dell to move out of the PC business.

Dell also faces a cash mobility problem in going private. The majority of the company's $14-plus billion in cash holdings are trapped overseas to avoid having to pay US taxes. So it will have to spend a good deal of its cash on hand at home on the deal, plus get help from outside—including, most likely, from Michael Dell's own investment fund, as well as from Microsoft.

But the alternatives aren't great either.

It isn't clear how Dell is going to do that as a public company, either, without having to expend more of its warchest or take on debt, considering the direction its stock is headed in—the only reason it has bounced up at all recently is because investors are reacting to news of a potential buyout.

While many analysts think Dell should be using its stock to buy its way out of the PC business—which accounts for 60 percent of Dell's profits right now—some are questioning its move into software and services. Dell's overall sales have been slipping with government and corporate customers, even as they've grown in the small- and medium-business market.

There's a problem with that particular analysis: those sales numbers are based at least partially on PC sales. And while Dell's sales to SMB went up, its profits from those sales went down last quarter like all the others, and large enterprise sales were 26 percent larger than SMB sales.

The other question is whether rapid growth through acquisition is really going to help Dell at this point. After all, rapid growth is what the stock market wants, but it may not be strategically valuable to Dell in the long term. Undertaking research and development with the assets the company has already acquired (like Wyse's Project Ophelia, for example) might have bigger long-term payoffs.

Of course, Microsoft's interests are most likely to keep Dell in the PC business, at least in some form, which may be why Microsoft is looking to get in on Dell's going-private action. After all, a healthy Dell will help Microsoft by preserving some semblance of choice in the Windows PC and tablet market while keeping Windows license revenues flowing. It would also help Microsoft stick to the premium device model it has chosen for Surface.

But is it really in the long-term interest of Dell to stay in consumer PC sales just so it can be a Microsoft sales channel?

98 Reader Comments

As a former Dell worker of almost 10 years, I remember the endless propaganda from Corporate Communications about "Innovation" and cost cutting. I'm fairly sure the only real problem with Dell is Dell himself. Get some real leadership back and stop this stupid antics of pumping the stock by faking a private takeover.

Great article; really helps me understand Dell's motivations, and Microsoft's attempts to hedge against their own evolutionary moves. I think the gyrations various old-school PC makers like Dell, HP, and others, are going through as they reevaluate their consumer PC business and what they want to be as corporations in the future is fascinating; there's such a palpable disdain for consumer PC sales, as if everyone is happy to take whatever revenue is left on the table, while desperately searching for the exit. Does anyone other than a handful of Asian OEMs even want to be in the PC business anymore? What happened with Vizio and all the cocksure bleating they made a year ago about entering the PC market?

I know when Apple started charting its post-Macintosh future years ago, there were (completely legitimate!) questions about whether it was too early, the right decision, etc. When Dell starts doing it, does anyone believe there will be a generic, consumer-focused PC market to speak of in 10 years? in 5?

It seems like consumer Windows PC's have been a low-margin commodity for years now, and Microsoft is trying to keep Dell's face in the mud. I think they'd be better off with a different investor who doesn't have such an agenda.

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions. Dell has some very attractive products at the moment, if they could just make that final step and get their QC in gear and optimize internal processes they could be doing much better. The problem is not what they're selling, which is obvious based on the volumes that are selling, it's the way the company is managed.

This is what I found odd about the news to initially. The entire point of taking Dell private is to free them of the short term financial expectations of Wall Street so that they can develop strategies that focus on the long term and, hopefully, disruptive technology over the PC business that will never be as profitable as it once was for them. Or so says Michael Dell himself. Having MS as a significant stakeholder seems unlikely to free them to focus on cloud based "post-PC" ideas.

However, MS is in a similar situation, albeit from a far stronger financial position. They need to move beyond the PC as that market has largely saturated and they're struggling to find what comes next before others do. If Dell is going to focus on a very long term, radical shift in the market, perhaps they can give MS cover for investing in the same without having Wall Street beat them up about the lack of short term returns on that investment while also pulling them along to that future.

All very "idealized" logic, but I'd be surprised if that's not where these rumors are coming from.

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions. Dell has some very attractive products at the moment, if they could just make that final step and get their QC in gear and optimize internal processes they could be doing much better. The problem is not what they're selling, which is obvious based on the volumes that are selling, it's the way the company is managed.

Consumer is not as core to Dell as all PC sales are to HP. And all PC sales, not just Dell's are declining with consumers.

HP tried selling off their PC division while at the same time publicly trashing it, saying we lived in a post-PC world (devaluing what you're selling isn't so smart). That didn't work out well for them.

But it seems no one really wants to be in the business of selling PCs to end users right now. Competition drove the profit margin way down. Support is costly.

I think the model should shift from third party PC manufacturers to the owners of the platforms. Apple doesn't mind selling you an iMac or Macbook, because the PC is also a means to get you into their ecosystem/platform.

Google has reason to put a Chromebook in your hands. Microsoft wants you to use a Windows PC. There is benefit to these companies to sell a PC, even if profit margins are low. Perhaps they should be the ones doing it.

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions. Dell has some very attractive products at the moment, if they could just make that final step and get their QC in gear and optimize internal processes they could be doing much better. The problem is not what they're selling, which is obvious based on the volumes that are selling, it's the way the company is managed.

Consumer is not as core to Dell as all PC sales are to HP. And all PC sales, not just Dell's are declining with consumers.

I think the PC profit margins are declining, but sales have gone up every year. The rate of growth is slowing.

Some suggested the moment netbooks were invented that no one would buy a PC again, and the same has been said for tablets. These other devices seem to supplement PCs, not completely replace them today. Perhaps in the future that will be the case, but right now PCs are still selling.

We've seen where things are going. After Apple's coup in making a wildly successful business model from staunchly clinging to the closed system model for their entire existence, everyone wants to duplicate that. It's all about owning the whole stack, tightly controlling every single aspect, and squeezing consumers and developers alike by the balls for every shekel they can get. And consumers can't get enough.

The new frontier is the pay-to-play model, and as a developer, your costs increase with every new popular platform, because of the costs involved in hardware and tools, not to mention the shakedown of your profits.

Companies like Dell are doomed unless they become a part of someone else's machine, or somehow develop their own device du jour and get enough market share from it.

I know when Apple started charting its post-Macintosh future years ago, there were (completely legitimate!) questions about whether it was too early, the right decision, etc. When Dell starts doing it, does anyone believe there will be a generic, consumer-focused PC market to speak of in 10 years? in 5?

The problem is that as others have pointed out, the OEMs have commoditized the PC market, and it happened years ago. In terms of growth opportunities, the two big ones left are new types of devices (tablets?), and cannibalizing the sales of competitors.

The only OEMs currently doing any real amount of cannibalizing in the last decade are the Chinese OEMs and Apple.

And has Dell really made any *serious* attempts in new spaces? Well, they sell a tablet, but they sure don't seem to care about telling anyone about it. They made a smartphone, but didn't really tell anyone about that either.

Dell's move here is more trying to hold onto their strengths for as long as possible instead of developing new muscle. By saying they want to focus on enterprise, what they are really saying is that they want to service a group of customers that are still buying the sort of stuff Dell was good at 10 years ago.

Yes, the consumer desktop PC market is shrinking, but I don't think it'll ever go away completely, just continue to evolve. While a smaller segment might use desktops, it makes about as much sense to stop making desktops (at least for now) as it does to stop making trucks just because commuter cars are a better choice for most of the population.

As a former Dell worker of almost 10 years, I remember the endless propaganda from Corporate Communications about "Innovation" and cost cutting. I'm fairly sure the only real problem with Dell is Dell himself. Get some real leadership back and stop this stupid antics of pumping the stock by faking a private takeover.

Just looking at their product page says a lot. Too many products and an out of control supply chain. Cut the number of desktop lines to 3, with limited options. i3, i5 and i7 based. Spin Alienware off as either a separate division, or sell it off and let it be independent.

Same with laptops. 3 lines and done. Dell is a commodity PC company. So make commodity PC's and reduce your parts inventory. It's the exact same mistake HP has made, except that HP continues to do stupid things in acquisitions as well.

We've seen where things are going. After Apple's coup in making a wildly successful business model from staunchly clinging to the closed system model for their entire existence, everyone wants to duplicate that. It's all about owning the whole stack, tightly controlling every single aspect, and squeezing consumers and developers alike by the balls for every shekel they can get. And consumers can't get enough.

The new frontier is the pay-to-play model, and as a developer, your costs increase with every new popular platform, because of the costs involved in hardware and tools, not to mention the shakedown of your profits.

Companies like Dell are doomed unless they become a part of someone else's machine, or somehow develop their own device du jour and get enough market share from it.

Honestly this is exactly my first thought on reading it. It screams out to me as a move by Microsoft to do two primary things: 1) eliminate the primary (and almost only) retailer of off-the-shelf computer pre-installed with Linux (in this case Ubuntu), and 2) acquire the hardware division it needs to move their lock-down plans forward.

Regarding point 2, they already started by locking down WindowsRT to force you to use their store, just like an iProduct forces you to use iTunes and the Apple App Store. Stage two that many of us have been pointing to as the logical (and horrifying) progression is to extend that control to the desktop (carefully, so as not to flirt with the AT&T-style breakup they were supposed to get before but bought their way out of), similarly to how Apple did with making Lion more iTunes-centric, with UEFI icing on the cake to lock down even other computers.

So yes, potentially two birds with one stone: kill off the only major retailer of consumer, off-the-shelf linux computers and set the stage for an Apple-like lockdown of the PC, complete with their hands on the hardware side (all it takes is saying "sorry, we're not licensing Windows to non-Dell computers any more" and businesses get to decide between migration costs to linux or using Dell exclusively, like you use Apple exclusively if you want a Mac).

Admittedly this is very much the worst-case extreme scenario, but given Microsoft's history and modus operandi you know it's occurred to them, and the thought alone is giving them hard-ons like a triple-dose of viagra.

But the biggest benefit of going private is that Dell could make decisions based on long-term strategic goals instead of basing them on the immediate issues that drive the company's market valuation.

This. Reminds me of Mark Cuban's blog post about the market only caring about earnings growth as opposed to long-term financial strength. Whether private or public, it seems that leadership will always have its hands tied one way or another with regards to strategic direction.

As a former Dell worker of almost 10 years, I remember the endless propaganda from Corporate Communications about "Innovation" and cost cutting. I'm fairly sure the only real problem with Dell is Dell himself. Get some real leadership back and stop this stupid antics of pumping the stock by faking a private takeover.

Dell never developed leadership from within. Anytime the company expanded Michael would hire someone from the competition. After a while it was just another computer importer. Once the carpetbaggers ran off anyone that was willing to take a chance there was no one left with fresh ideas. Then when the heat got too bad they took the money and ran. The attitude went from "Whatever it takes" to "We're no worse than anyone else."

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions. Dell has some very attractive products at the moment, if they could just make that final step and get their QC in gear and optimize internal processes they could be doing much better. The problem is not what they're selling, which is obvious based on the volumes that are selling, it's the way the company is managed.

Agreed. Getting out of the PC business and keeping the server business is dumb, there are synergies there you would lose. And why get out of the PC business in the first place? It's not because it's not profitable, it's because it's not profitable enough. Not profitable enough for what? For the stock market. It brings down margins for investors who don't actually care about the long-term well-being of the company. It's still a perfectly profitable business that is making Dell money. It would make no sense to privatize the company, in order to make changes to make the company more appealing to investors as a public company, in a way that really shrinks Dell's revenue base and makes them more dependent on a single market (services) and therefore more vulnerable to markets changing.

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions. Dell has some very attractive products at the moment, if they could just make that final step and get their QC in gear and optimize internal processes they could be doing much better. The problem is not what they're selling, which is obvious based on the volumes that are selling, it's the way the company is managed.

Consumer is not as core to Dell as all PC sales are to HP. And all PC sales, not just Dell's are declining with consumers.

I think the PC profit margins are declining, but sales have gone up every year. The rate of growth is slowing.

Some suggested the moment netbooks were invented that no one would buy a PC again, and the same has been said for tablets. These other devices seem to supplement PCs, not completely replace them today. Perhaps in the future that will be the case, but right now PCs are still selling.

I think MS is trying to do away with the "PC" with it's Win 8 platform. By dumbing down the interface to a tablet, folks will be more inclined to move over to a tablet ... then buy a keyboard for it. Really, it's just a notebook computer sold as two separate parts.

MS is trying to move into the "appliance computer" market, eventually get to the point of having an x-box-like business console companies just hand their users. Set hardware platform, so it's easy to crank stuff out for. I think their move with Dell is about them getting one step closer to that goal.

Of course, this is a major assumption, but, that's really what most of us have now.

As for Dell, they failed b/c...

a) "innovation" and "cost cutting" to them meant "innovating" purchase agreements with cheaper, chinese parts companies and out-sourced tech support

b) they put crapware on their comps, and when you went to their sites to perform updates, they'd keep their crapware up-to-date, but you'd never find drivers or such. People don't give a shit about some companies all-in-one crapware diagnostic "tool" which is really just a slap-in-the face when it does shit like "oh, we see you're computer is slow...would you like to buy more RAM from us?"

c) their tech support sucked, for consumer and business. They cheaped out on parts, so comps broke down all the time, then their anemic tech support got slammed. Hanging up on customers or letting calls go unanswered time and time again is not how to handle "tech support".

d) they haven't changed their mentality ... they're still stuck in that 1980's MBA-ran, "we're trying to appease the shareholders, not the customers" mentality that got them in this mess in the first place.

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions.

Yes and no. It's not a particularly profitable business, and it's subject to some extremely fickle buying patterns and a horrific race to the bottom. No one save Apple has been able to generate much in the way of consumer loyalty to a particular PC hardware brand.

Not that their business divisions are much better. I'm sure the Latitudes and Optiplexes and PowerEdges have some loyalists, but corporate fleet is also a fickle place, albeit fickle on a three-year cycle and BYOD is wearing down the PC part of that business, too. There's Equallogic (side note: which I use, and is awesome) and Compellent, but that's not enough on their own.

One or more of the big PC OEMs is going to have to roll up their sleeves and make some kind of compelling proposition to customers that ensures Apple-like repuchase loyalty and the margins that go with it. The problem is that it involves a lot of short-term pain: they'll have to get out of the race to the bottom and thusly bleed cash and marketshare for longer than most shareholders will tolerate. In this sense, going private is not a bad idea as it would get Dell out of the quarterly Wall St. rat-race mentality.

Microsoft has historically made some very good investments in the past ( this does not include companies they have purchased ).

The biggest companies I can think of are.

AppleFacebookNokia Barnes and Noble

I think all but Barnes and Noble have made Microsoft money. While its a little early to say the investment ( and partnetship ) with/in Nokia has paid off they certainly have not lost money in the deal. Considering we have not seen what the deal with Barnes and Noble will turn into even that is to early to say anything.

So I welcome Microsoft investing in Dell's future, they have made their investment back from Apple and Facebook in the past and then some in the case of Facebook ( made their entire investment back by only selling 25% of their shares ).

We've seen where things are going. After Apple's coup in making a wildly successful business model from staunchly clinging to the closed system model for their entire existence, everyone wants to duplicate that. It's all about owning the whole stack, tightly controlling every single aspect, and squeezing consumers and developers alike by the balls for every shekel they can get. And consumers can't get enough.

The new frontier is the pay-to-play model, and as a developer, your costs increase with every new popular platform, because of the costs involved in hardware and tools, not to mention the shakedown of your profits.

Companies like Dell are doomed unless they become a part of someone else's machine, or somehow develop their own device du jour and get enough market share from it.

Honestly this is exactly my first thought on reading it. It screams out to me as a move by Microsoft to do two primary things: 1) eliminate the primary (and almost only) retailer of off-the-shelf computer pre-installed with Linux (in this case Ubuntu), and 2) acquire the hardware division it needs to move their lock-down plans forward.

Regarding point 2, they already started by locking down WindowsRT to force you to use their store, just like an iProduct forces you to use iTunes and the Apple App Store. Stage two that many of us have been pointing to as the logical (and horrifying) progression is to extend that control to the desktop (carefully, so as not to flirt with the AT&T-style breakup they were supposed to get before but bought their way out of), similarly to how Apple did with making Lion more iTunes-centric, with UEFI icing on the cake to lock down even other computers.

So yes, potentially two birds with one stone: kill off the only major retailer of consumer, off-the-shelf linux computers and set the stage for an Apple-like lockdown of the PC, complete with their hands on the hardware side (all it takes is saying "sorry, we're not licensing Windows to non-Dell computers any more" and businesses get to decide between migration costs to linux or using Dell exclusively, like you use Apple exclusively if you want a Mac).

Admittedly this is very much the worst-case extreme scenario, but given Microsoft's history and modus operandi you know it's occurred to them, and the thought alone is giving them hard-ons like a triple-dose of viagra.

Your points about the closed system have some merit.

Your point about Dell and linux is ridiculous. The sales on those models are so low, Microsoft is not concerned about them. That point has not part in the discussion of Dell going private. If microsoft is so concerned about Linux why did they build linux support into Hyper-V?

Companies like Apple and Google have giant sums of money sitting idle in investment accounts. There is more investment money than viable, ready-to-go ideas. If Dell's PC business is able to generate a basic return above the interest/bond rate, it seems that financially it's worth keeping around.

Dell's attempts at Android devices and tablets were the worst in the market. I don't understand why they can make ultrabooks that are completely competitive with say the MacBook Air, but they can't make a halfway decent Android device or tablet that is remotely competitive with an iPad or iPhone.

I think that Dell needs to streamline their offerings AND offer the ability to customize more than just monitor size, extra RAM and the like.If they would build along the lines of the system guide (Budget, Hot Rod and God box) as their base offerings, and have their pricing in line with the system guide as well. Then they need to have the ability to make changes to the base systems, and not charge exorbitant prices for the changes ($200 to go from 4gb to 8gb really?)

Yes I want to have & eat my cake.

The number one reason I started rolling my own was that OEM's didn't let me make changes where I wanted to, or forced me to get something I didn't want to get something I did. (see also: Alienware...Oh you want a more powerful GPU, ok that's fine but you have to add a blue ray player, change the CPU to model X etc)

Dell's attempts at Android devices and tablets were the worst in the market. I don't understand why they can make ultrabooks that are completely competitive with say the MacBook Air, but they can't make a halfway decent Android device or tablet that is remotely competitive with an iPad or iPhone.

It seems like consumer Windows PC's have been a low-margin commodity for years now, and Microsoft is trying to keep Dell's face in the mud. I think they'd be better off with a different investor who doesn't have such an agenda.

This is business. All businesses have an agenda hidden or not. There isn't a company in existence that moves to help another out of good will. MS breathed life back into Apple when it was clear Apple was going to fall if no one did anything. MS helped Apple to help itself. MS is doing the same thing here. MS makes most of its money from enterprise NOT the home user. DELL wants to move away from consumer products (home user) and focus on the enterprise users. I see nothing wrong here. They both share a common interest and since MS has the dominant enterprise OS and and office suite this partnership is a no brainer.Please explain to us how MS is trying to 'keep Dell's face in the mud.' MS is not a direct competitor of Dell's in any way. The relationship between MS and Dell is a symbiotic one. MS can only benefit from helping Dell succeeding with what it plans on doing.

It screams out to me as a move by Microsoft to do two primary things: 1) eliminate the primary (and almost only) retailer of off-the-shelf computer pre-installed with Linux

This is silly. Microsoft is focused on competing with Apple and Google and they are generally losing. Desktop Linux is a completely fringe technology. It's a superior OS than Windows if you do command line type work, just like LaTeX is completely superior to Microsoft Word, but it has a learning curve and it's fringe.

I think that Dell needs to streamline their offerings AND offer the ability to customize more than just monitor size, extra RAM and the like.If they would build along the lines of the system guide (Budget, Hot Rod and God box) as their base offerings, and have their pricing in line with the system guide as well. Then they need to have the ability to make changes to the base systems, and not charge exorbitant prices for the changes ($200 to go from 4gb to 8gb really?)

Yes I want to have & eat my cake.

The number one reason I started rolling my own was that OEM's didn't let me make changes where I wanted to, or forced me to get something I didn't want to get something I did. (see also: Alienware...Oh you want a more powerful GPU, ok that's fine but you have to add a blue ray player, change the CPU to model X etc)

Why not just build your own system if you want that much customization? Dell's consumer customer base has never been system builders. It's always been the basic user who doesn't know much about computers and didn't care to learn. People who didn't mind spending more to have them build a system they could use. What you are talking about only complicates the computer buying process for the basic user and would be more likely to push their consumer customers to their competition.

We've seen where things are going. After Apple's coup in making a wildly successful business model from staunchly clinging to the closed system model for their entire existence, everyone wants to duplicate that. It's all about owning the whole stack, tightly controlling every single aspect, and squeezing consumers and developers alike by the balls for every shekel they can get. And consumers can't get enough.

The new frontier is the pay-to-play model, and as a developer, your costs increase with every new popular platform, because of the costs involved in hardware and tools, not to mention the shakedown of your profits.

Companies like Dell are doomed unless they become a part of someone else's machine, or somehow develop their own device du jour and get enough market share from it.

Honestly this is exactly my first thought on reading it. It screams out to me as a move by Microsoft to do two primary things: 1) eliminate the primary (and almost only) retailer of off-the-shelf computer pre-installed with Linux (in this case Ubuntu), and 2) acquire the hardware division it needs to move their lock-down plans forward.

Regarding point 2, they already started by locking down WindowsRT to force you to use their store, just like an iProduct forces you to use iTunes and the Apple App Store. Stage two that many of us have been pointing to as the logical (and horrifying) progression is to extend that control to the desktop (carefully, so as not to flirt with the AT&T-style breakup they were supposed to get before but bought their way out of), similarly to how Apple did with making Lion more iTunes-centric, with UEFI icing on the cake to lock down even other computers.

So yes, potentially two birds with one stone: kill off the only major retailer of consumer, off-the-shelf linux computers and set the stage for an Apple-like lockdown of the PC, complete with their hands on the hardware side (all it takes is saying "sorry, we're not licensing Windows to non-Dell computers any more" and businesses get to decide between migration costs to linux or using Dell exclusively, like you use Apple exclusively if you want a Mac).

Admittedly this is very much the worst-case extreme scenario, but given Microsoft's history and modus operandi you know it's occurred to them, and the thought alone is giving them hard-ons like a triple-dose of viagra.

Your points about the closed system have some merit.

Your point about Dell and linux is ridiculous. The sales on those models are so low, Microsoft is not concerned about them. That point has not part in the discussion of Dell going private. If microsoft is so concerned about Linux why did they build linux support into Hyper-V?

That's why I devoted so little time to that point in my post; it wasn't a primary point, so much as a side benefit that MSFT would be perfectly happy about. However small the share is, though, Dell is the only well-known one (to non-techies, and even to most techies; I'm a pretty heavy Linux user, but while I know there are a few companies selling linux computers, Dell's the only one I know by name).

As to Hyper-V, it's a matter of swallowing their pride and making the decision that is most in their favor. Linux and UNIX rule the server market, this is well-known. With the increase in the use of virtualization technologies, to allow their product to run at anything but ideal performance would be shooting themselves in the foot and driving customers to their competitors. By helping improve support for Hyper-V (and making sure Hyper-V supports linux) they avoid alienating those potential customers, and gain a wedge to get people hooked on their products. As I'm sure you're well aware, once you start using MSFT products, the longer you use them and the more of them you use, the more dependent on MSFT you become, and the harder and more costly it becomes to escape their grip on your organization.

This particular point also ties in with what Jdale mentioned about quarterly profits being more important than long-term strength and stability of the company. Because they fear a hit to quarterly numbers, they continue to use the higher-TCO products from Microsoft, rather than take the one-time hit of migrating that would ultimately result in massively-reduced TCO (and potential improvements in productivity resulting from superior security, stability, interoperation, and reduced hardware and administration requirements).

MSFT is nothing if not intelligent when it comes to pushing their products out whether they're wanted or not, and then making you keep them whether you want to or not. That emphasis on quarterly vs long-term profits plays right into such strategies.

I think that Dell needs to streamline their offerings AND offer the ability to customize more than just monitor size, extra RAM and the like.If they would build along the lines of the system guide (Budget, Hot Rod and God box) as their base offerings, and have their pricing in line with the system guide as well. Then they need to have the ability to make changes to the base systems, and not charge exorbitant prices for the changes ($200 to go from 4gb to 8gb really?)

Yes I want to have & eat my cake.

The number one reason I started rolling my own was that OEM's didn't let me make changes where I wanted to, or forced me to get something I didn't want to get something I did. (see also: Alienware...Oh you want a more powerful GPU, ok that's fine but you have to add a blue ray player, change the CPU to model X etc)

This would be exactly wrong from a business point of view. Tech site people want lots of choices, me included. But as a commodity seller, lots of choices costs lots of money. Have your budget, mid line and high end with very few options. Make the options expensive too. That way, you can make most of your products to one spec (saving inventory and assembly costs), and the more expensive BTO computers pay for themselves.

I think MS is trying to do away with the "PC" with it's Win 8 platform. By dumbing down the interface to a tablet, folks will be more inclined to move over to a tablet ... then buy a keyboard for it. Really, it's just a notebook computer sold as two separate parts.

I think this change is overstated. Computers are shrinking, as they always have. The new form factor will be smaller and thinner than the old form factor. Removable keyboard, sure, why not?

It's still a computer. The PC is not being abolished, it's just being changed, again. "In the future, computers may weigh no more than 1.5 tons!" There is still going to be a need for manufacturers to produce the hardware, whatever size and shape it happens to be.

Consumer products are Dell's core business, this is just as stupid as when HP announced (and later recanted) that they would be focusing on business solutions.

Yes and no. It's not a particularly profitable business, and it's subject to some extremely fickle buying patterns and a horrific race to the bottom. No one save Apple has been able to generate much in the way of consumer loyalty to a particular PC hardware brand.

Not that their business divisions are much better. I'm sure the Latitudes and Optiplexes and PowerEdges have some loyalists, but corporate fleet is also a fickle place, albeit fickle on a three-year cycle and BYOD is wearing down the PC part of that business, too. There's Equallogic (side note: which I use, and is awesome) and Compellent, but that's not enough on their own.

One or more of the big PC OEMs is going to have to roll up their sleeves and make some kind of compelling proposition to customers that ensures Apple-like repuchase loyalty and the margins that go with it. The problem is that it involves a lot of short-term pain: they'll have to get out of the race to the bottom and thusly bleed cash and marketshare for longer than most shareholders will tolerate. In this sense, going private is not a bad idea as it would get Dell out of the quarterly Wall St. rat-race mentality.

This is an established market and it's no longer a high growth market. For high end you have Apple and Thinkpad and that's it. Everyone here as PC enthusiasts has/had an opportunity to buy an Adamo or Blackbird or X51 or Samsung Series 9 or carbon Thinkpad, but none of them sold/sell as well as Apple products. Yes, by definition, premium is exclusive and should have low sales, but there's a balance, as Apple has demonstrated. PCs are commodities and without an unique OS to distinguish your products, you're hard-pressed to develop a premium brand.

For Dell to reinvent itself would require at a minimum a big distinguishing idea. Audi had Quattro. Oakley had their optic tech and materials construction. Nike had Air in their high end products.

Remember, Dell already has a premium brand, Alienware and failed to expand it with the x51 last year (with superior engineering and design and a better price/performance point than Macs do, even custom gaming software features).

What idea in PCs would establish a new premium brand for HP, Dell, or anyone?

I think that Dell needs to streamline their offerings AND offer the ability to customize more than just monitor size, extra RAM and the like.If they would build along the lines of the system guide (Budget, Hot Rod and God box) as their base offerings, and have their pricing in line with the system guide as well. Then they need to have the ability to make changes to the base systems, and not charge exorbitant prices for the changes ($200 to go from 4gb to 8gb really?)

Yes I want to have & eat my cake.

The number one reason I started rolling my own was that OEM's didn't let me make changes where I wanted to, or forced me to get something I didn't want to get something I did. (see also: Alienware...Oh you want a more powerful GPU, ok that's fine but you have to add a blue ray player, change the CPU to model X etc)

This would be exactly wrong from a business point of view. Tech site people want lots of choices, me included. But as a commodity seller, lots of choices costs lots of money. Have your budget, mid line and high end with very few options. Make the options expensive too. That way, you can make most of your products to one spec (saving inventory and assembly costs), and the more expensive BTO computers pay for themselves.

They have the Alienware line for people with more dollars than sense.

Thus the reason I have built my last 4 desktops. Now if only there was a reasonable way to do a laptop...

Microsoft is focused on competing with Apple and Google and they are generally losing.

Also with Linux and FOSS in general, as they have been for decades and still are today. Simply follow the money, as MSFT has and still does invest heavily in campaigns both political, propaganda, and legal (themselves and through proxies) against Linux.

Viewer wrote:

Desktop Linux is a completely fringe technology.

Which gains market share all the time, and whose marketshare generally goes underreported since 1) nearly all off-the-shelf computers count as Windows sales thanks to the "Windows Tax," and 2) any software (games especially) that doesn't have a Linux version will pretty much always be the Windows version, which then gets run in WINE.

Viewer wrote:

It's a superior OS than Windows if you do command line type work...but it has a learning curve...

You'll actually find, if you look at any modern distribution, that you can use it EXACTLY like a Windows PC or Mac. Not only this, but if you have it set up already for them, your average user generally won't notice something is different unless you tell them, at least not any time soon. This applies whether you're talking about browsing and email, or doing work for university (though if your instructor insists on using MSFT formats you may occasionally have some formatting issues; most instructors, in my experience, are happy to provide PDFs in these cases, when asked).

Modern Linux distributions typically have no more of a learning curve than Windows, MacOS, iOS, or Android (in fact, the learning curve on Android is probably higher than Ubuntu or Kubuntu, the main user-focused desktop linux distros). What's more, the popularity and proliferation of smartphones has already started teaching people to use Linux easier and faster, thanks to teaching people "go to the marketplace, search for what you want, and click "install." What was already easy (and whose only real difficulty in the last decade or more has been aversion to change, rather than actual difficulty in learning) is now even easier, and we can thank people learning to use iOS and Android for making the transition even easier still.

Viewer wrote:

...and it's fringe

Which is completely irrelevant, given that everything was fringe at some point or another, and Linux marketshare has only ever grown; however small it may have been in the past didn't stop MSFT from doing everything in their power to try to kill it off then, to think that they don't still want to achieve that given ever-increasing market share is what's really silly.

__________________

Now I am by no means one of those "year of the linux desktop" zealots. Linux's time will come when it comes. These things are gradual; people do not like change. But Linux is not something to dismiss, and most of your points against it are little more than propaganda that's been outdated for a decade or more, and some of it never true in the first place.

Businesses and governments around the world already see the value of linux. Many major tech companies use it exclusively (or are at least zero-MSFT environments) in-house, such as Google (choice of Linux or Mac), IBM (Linux), several government organizations in Europe (many in Germany, IIRC; if the numbers interest you I'll try to track down the article listing some of the larger companies and governments and government agencies that made the switch to linux), and others.

Linux is used in nearly every device you own with a chip, from your blu-ray player and tv to your microwave, washing machine, and car. It runs an overwhelming majority of the WWW and the internet itself. It runs the majority of servers in general (with MSFT's only real bastion here being enterprises they've managed extreme influence with, such as the US DOD, and companies without strong / knowledgeable CIOs).

It may be "fringe" on the desktop, but it's far from worthy of dismissal. To do so is not only foolish, but outright hubris. Never turn your back on or ignore an enemy, whether in war or business (arguably, business can be more ruthless and less ethical...)

It screams out to me as a move by Microsoft to do two primary things: 1) eliminate the primary (and almost only) retailer of off-the-shelf computer pre-installed with Linux

This is silly. Microsoft is focused on competing with Apple and Google and they are generally losing. Desktop Linux is a completely fringe technology. It's a superior OS than Windows if you do command line type work, just like LaTeX is completely superior to Microsoft Word, but it has a learning curve and it's fringe.

Indeed. There is a shift going on from Windows laptop/desktops to iPad/Android tablets. Linux doesn't come into the equation (aside from Android).

I'm sure the shift will stabilize at some point, but for sure the desktop paradigm will be used less and less.

Sean Gallagher / Sean is Ars Technica's IT Editor. A former Navy officer, systems administrator, and network systems integrator with 20 years of IT journalism experience, he lives and works in Baltimore, Maryland.